The nature of business
OceanCash Bhd is a company that manufactured "Felts" and "Non-Woven" materials.
1. OceanCash Felts: Manufacturing and distribution of resinated felts and thermoplastic felts for thermal and acoustic applications.
These items are basically use in our car. U can check the website below to know more: http://www.oceancash.com.my/OurSubsidiaries.html
2. OceanCash Non-woven: Manufacturing and distribution of thermalbond, airthrough and specialty nonwoven fabrics for hygiene applications.
These items are basically use in our hygiene item such as Pampers and Mask. U can check the website below to know more: http://www.oceancash.com.my/OurSubsidiaries-Nonwoven.html
Fundamental
Revenue:
The table above shown clearly that the revenue is growing steadily.
Net Profit:
The net profit for the company has been growing steadily for the past 4 quarters.
Retained Earnings:
Source: http://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=188012&name=EA_FR_ATTACHMENTS
Looking at the latest quarter report, we can see that the retained earnings of the company is 1.28 times larger than Share capital. In this case, this mean that the company is having sufficient financial muscle to give a 1 to 1 bonus issue in near term.
We believe this company has high potential on giving bonus issue in near term.
Theme:
1. Benefit from Strengthening USD
From the latest Quarter report, we can see that 70% revenue of the company are from foreign countries. As a result, we believe the company will have a boost on the coming quarter result as that was the worst time for Ringgit.
2. Cost saving from Low Crude Oil Price
Source: http://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download/?name=EA_DS_ATTACHMENTS&id=159659
In the annual report of 2011, we can see that the company mentioning the cost of high crude price is one of the reason for high raw material cost. As a result, we would have to make an assumption here that the company will have lower cost of material as the crude oil price is much lower by now. (We have saw the same situation that happen to most of the plastic related industry recently)
3. Growth
Souce: http://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=169572&name=EA_DS_ATTACHMENTS
Looking at the chairman statement of Annual Report 2014, we can see that the company are Growing!
Looking at point no 1, we can see that they are relocating their production line in Indonesia and there is an increase from 1 production line to 2 production line in Indonesia which is expect to be fully operated in 2016
Point no 2, the company is expanding into Thailand.
Point no 3, the company have got new client (increase in demand) where they will modify their production line to increase capacity (increase production) in order to fulfill the demand.
Point no 4, the company is trimming down their non-performing business which helps to boost the efficiency of capital by cutting cost.
4. Changing Listing board from ACE to Main Market
As we know, the 1st 2 requirement to change board from Ace to main market is
1. Having cumulative of Rm20m in 3 to 5 years time
2. The earning for that last year should be above RM6m.
Looking at the situation above, we can see that the company had made RM16.178m in the past 4 years, which mean the only thing to qualify them from changing board is making RM6m by end of 2015 financial year.
Looking at the current financial year, we can see that they have made RM4.671m in the 1st 2 quarters, which mean they need another RM1.4m then they will be qualify for the change board listing. So the current quarter and the next quarter result will be crucial to the company.
Valuation
With using the EPS of the past 2 quarters which is 2.1c, hence our annualized EPS will be 4.2c.
As per the closing price of OCNCASH on Friday, which is 44.5c, we can easily come to a valuation of 10.59 times PE.
Looking at the counter of related industry such as NTPM with 17 times PE and Halex with 28 times PE and the PE of OCNCASH of 10 times, we can easily get an average of 18 times PE for the industry.
To be conservative, we give Ocncash a PE of 15 times after a 20% discount from the industry, we can see that a 15 times PE Valuation will suggest that OCNCASH should be trading at 63c.
Technical Analysis
The share price had hit historical high on last Friday, which mean the share is now in an area of no resistant. That is why we said the counter is now traveling towards no man's land.
RISK
Seriously, we can hardly see any risk other than seeing the company had turn from a net cash company to a non-net cash company. However, this is a very normal thing as the company has to borrow money to expand their production.
1. The risk we can think of is, the result might turn out to be not as positive as we think. As a result we will have to set RUN ROAD price once things had turned against us. We will set our RUN ROAD Price at RM0.41 as it is the place where we saw the stock started to moved.
2. Company failed to qualify for change board listing. If this were the case, then RUN ROAD is the only way.
Summary
1. Company is growing healthily by having steady Revenue and Income Growth.
2. Company is potential for bonus issue.
3. Benefit from strengthening USD
4. Benefit from low crude oil price
5. Growth contribution from Indonesia and Thailand as well as new customers.
6. Potential for changing listing board from Ace to Main market.
7. Cheaper Valuation compare to peers and industry average.
8. No more resistant from technical analysis wise.
As a result, we have adjusted our short term TP from RM0.465 to RM0.50 while mid term target of RM0.60.
However, all of this TP is subjected to their coming quarter earnings, if the coming quarter earnings that will be announcing in November didn't do well then we will have to RUN ROAD!
1st TP RM0.50
2nd TP RM0.60
Run Road Price: RM0.41
May all the HUAT be with us!
Regards
Big Canon Finance
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Disclaimer: The content on this site is provided as general information and for education purpose only which should not be taken as investment advice.
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